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  Kaplan proposed creating a "financial viability adviser" and granting him or her the power to hold the automakers accountable—they would get no long-term money from the government without showing they could survive as going concerns. Importantly, from the Bush team's perspective, the incoming administration would publicly embrace that same commitment at the time of the viability adviser's appointment.

  Paulson responded warmly to the idea. Bailing out an industry so fundamental to the American identity and way of life was a politically charged subject. Only someone outside the usual chains of command, someone of authority and integrity—Paul Volcker, the former Federal Reserve chairman, was mentioned—could force the tough decisions the industry would need. What was more, if the White House could persuade the Democrats to agree on the choice of an adviser now, there would be someone securely in place to hold off the unions and keep the bailout in check after Bush left office. "Financial viability adviser" quickly got shortened to "car czar," an epithet that would come to cause me much grief.

  Paulson and Summers went round repeatedly that week about TARP. Summers felt that Paulson hadn't truly sold the Bush White House on the importance of taking down the second half of TARP and was trying to enlist the Obama team in his cause instead. In the course of every conversation with Paulson, Summers brought up autos. Although skeptical about the car-czar idea, he had started thinking about possible recruits, hence the call to me the afternoon before Thanksgiving.

  Over the holiday, the White House stepped up its effort to engage Obama in a joint approach on both TARP and autos. Bolten phoned Emanuel to ask for a face-to-face meeting, but Rahm was reluctant. In the last presidential transition occurring during a historic economic crisis—Franklin Roosevelt's succeeding Herbert Hoover in 1933—FDR had deliberately remained aloof until he was in office. The Obama team doubted that there was a workable way to co-govern. And it had studied that precedent and concluded that it had little to gain politically by collaborating on any issue, let alone TARP and autos. This carefully calculated decision was packaged under the appealing sound bite "there can be only one President at a time."

  This was a source of frustration to Bush officials, who were pleased when Emanuel, unwilling to reject Bolten out of hand, agreed to a meeting—although he did not want it to take place in the Bush White House and specified that Summers, not he, would lead the Obama delegation. On Sunday afternoon, November 30, the two sides, mostly dressed in khakis and sports coats, gathered at the Treasury Department in Paulson's corner office, Paulson in his customary wing chair and Summers on the couch next to him. The Bush delegation, led by Bolten, Paulson, Gutierrez, Kaplan, chief congressional liaison Dan Meyer, and Keith Hennessey (whom Summers would be replacing), far outranked the team from Obama, which was still forming a staff. Paulson laid out the White House proposal: if the incoming administration would "link arms" to win approval for the second $350 billion of TARP, then the outgoing administration would support an auto rescue plan. Following this, Kaplan outlined his proposal for including an auto rescue in the uses of the second tranche of TARP. President Bush would issue an executive order appointing a financial viability adviser to administer the bailout, and the new Treasury secretary would agree to make TARP funding available only if the automakers could show that they were viable. As Summers already knew, this adviser would have broad authority to require financial plans from the automakers and to impose his own measures—including Chapter 11 bankruptcies—if the companies fell short. While the adviser would be officially selected by Bush, the Republicans made it clear that only someone acceptable to the Obama team would be named.

  Summers zoomed in on TARP, probing for evidence that the added money was actually needed before Obama arrived. Next he asked a lot of questions about autos, not hiding his skepticism about the idea of a car czar. Why would Obama want to outsource a problem that was his responsibility? Bolten replied that the White House was open to other ideas, but the meeting ended inconclusively after ninety-five minutes. Paulson, ever relentless, called Summers twice the next day, and Hennessey also gave Summers a ring. The clear impression among the Bush team was that the Obama team did not want to say yes or no and was slow-walking them.

  This triggered two recalculations. First, the administration decided to back off on TARP: as much as Paulson wanted the extra safety margin of $350 billion, an ugly fight over gaining access to the money could roil the markets as badly as another bank failure. Second, worried about the sufficiency of TARP, it returned to a legislative strategy that involved pushing Congress to make the advanced-technology funding available as a bridge loan to the auto companies.

  "Every industry in America is hurting today. Show me one that couldn't be assisted and made more viable and more profitable with an additional $34 billion," demanded Texas Congressman Jeb Hensarling. "So why the folks before us and not other folks?" By Friday, December 5, Detroit's CEOs were back on Capitol Hill for round two.

  In two scant weeks, the amount of their bailout request had ballooned from $25 billion to $34 billion. GM, at this point, wanted a $12 billion loan and a $6 billion line of credit, including $4 billion immediately to ensure survival past January 1. Chrysler wanted $7 billion. Ford, breaking ranks, said it needed no immediate cash, just a $9 billion line of credit.

  In the midst of what was becoming a predictable circus, some truths emerged. Most compelling was the testimony of Mark Zandi, the chief economist of Moody's Economy.com, who had delved into the automakers' restructuring and restoration costs. According to his analysis, their recovery plans rested on too optimistic assumptions. Just to avoid bankruptcy in the next two years, Zandi testified, the automakers would need not $34 billion but rather $75 billion to $125 billion—numbers that would prove amazingly prescient.

  Yet Zandi conceded that, in its battered state, the economy could not stand Detroit's implosion. Like other witnesses, he recommended that Congress provide emergency aid, though not as much as the automakers had asked. More could be offered later if the turnarounds began to work.

  The hearings ended with the grudging consensus that the automakers did indeed need help, but no one in Congress knew where the cash would come from, and only a week remained in the legislative year.

  A weekend of horse-trading ensued, during which President-elect Obama appeared on Meet the Press to reiterate his support for a bailout. "Millions of people, directly or indirectly, are reliant on that industry, and so I don't think it's an option to simply allow it to collapse," he said. By Monday, the congressional Democrats and the Bush White House had outlined an agreement, although it would take another few days to resolve the details of what a commentator called "the smallest Band-Aid that the automakers said they could live with [and] the most onerous conditions House Democrats could bring themselves to impose."

  The proposed bill provided $14 billion in loans, to be drawn not from TARP but from the Advanced Technology Vehicles Manufacturing Loan Program, as the White House and other Republicans had been proposing. Also called for was the selection of a presidentially appointed car czar and the imposition of a March 31, 2009, deadline for the Big Three to submit turnaround plans. If these failed to satisfy the car czar, he could demand repayment, which would mean bankruptcy.

  Speaker Pelosi had adopted the White House's approach in hopes of winning Republican votes. But by midweek, the gambit was in trouble. Although it appeared that the House would approve the bailout, the Senate posed a much tougher hurdle. Many Republican senators were itching to take a hard line on the automakers and the unions.

  These murmurs of dissent prompted Bush to dispatch both Chief of Staff Bolten and Vice President Dick Cheney to the Republican senators' weekly policy lunch, where the discussion grew heated. Abandoning his customary hard-line, free-market, let-'em-fail rhetoric, Cheney warned that unless the senators took action, they risked being remembered as "the party of Herbert Hoover forever."

  As disgruntled lawmakers shifted in their seats, Bob Corker, not easily int
imidated, stood up. "There is no way in heck that I would support this!" he said, declaring that the White House proposal demanded too little of the automakers. Describing what he'd learned from his fact-finding mission to Wall Street, Corker said that GM and Chrysler were effectively broke. More loans without the restructuring of liabilities and expenses would be folly, he argued. He laid out a set of tough strictures that would require the automakers to cut debt by making lenders accept stock; fund employee health care plans with stock, not cash; and make wages competitive. When he concluded, the caucus erupted in applause.

  "If [Bolten and Cheney] came with ten votes, they left with two," Corker said triumphantly after the lunch. He emerged with an unusual charter: Minority Leader Mitch McConnell delegated him to use the last two days of the congressional session to negotiate a more stringent bailout bill. In the rigid Senate pecking order, such tasks were almost always reserved for senior politicians.

  Word of the senators' rebellion spread fast. The White House had not expected to get many Republican votes in the House, and that proved to be the case. When Pelosi's bailout bill passed the House that evening, only 32 Republicans, mostly from auto manufacturing districts, joined 205 Democrats in voting yes. The auto bailout had been sucked into a Bermuda Triangle of transition politics. A lame-duck conservative Republican President, anxious that the auto industry not implode on his watch, was allied with congressional Democrats in the face of resistance from his own party.

  Treasury Secretary Paulson wasn't holding his breath for Congress to get the job done. Dusting off the contingency plan commissioned weeks before, he called to set up a lunch to discuss autos with President Bush. Paulson wasn't enthusiastic about Corker's proposal; from an investment-banking standpoint, it wasn't bad work for an amateur, but the government's understanding of automakers' problems was still too limited to justify such specific measures. What's more, Paulson suspected that the Republican leadership's support for Corker was only lukewarm; he doubted that any bailout plan could actually muster the necessary votes.

  His worry now was that Bush might not follow through on using TARP. Though the President had repeatedly told his senior team that he wanted a smooth transition and did not wish to saddle Obama with a major crisis as he walked in the door, the hard-core ideologues in the White House would certainly continue to argue against a bailout. To be sure, Paulson still believed that rescuing the automakers might strain TARP and hamper the Treasury in coping with a future crisis. But in recent days, the prospect of a disorderly bankruptcy of the automakers had moved up in his hit parade of imminent threats. Paulson was becoming convinced that an unplanned auto bankruptcy could have a disastrous impact on the declining economy and the frozen financial system.

  So, as Paulson lunched with the President and Kaplan in the small dining room adjacent to the Oval Office, he argued for a bailout. "GM has done no preparations to file for bankruptcy," he explained to Bush, who was eating carrots, a chopped apple, and a hot dog on a bun. "There is no private debtor-in-possession financing available. So a GM bankruptcy would be messy and would disrupt the network of suppliers," rippling through the industrial economy. Bush didn't explicitly agree, but Paulson left feeling reassured that if Congress failed to act, Bush would be open to emergency bridge financing using TARP.

  Thursday, December 11, was shaping up as the biggest day of Bob Corker's young Senate career. He had started at 7:30 A.M. with a call to Fritz Henderson at GM. His quick win of the company's endorsement was not especially surprising, given that the bailout conditions Corker sought to impose involved mainly sacrifices by the UAW and GM's creditors. Ron Gettelfinger, Corker's next call, at least didn't hang up on him—he said the UAW was open to further discussions. Corker's final step of preparation was to make the short trip to the Capitol to persuade his fellow senators.

  "It's showtime," Corker began in his appealing drawl as he stood on the Senate floor at 10:14. For the next seventeen minutes he reprised the argument he'd made to the caucus the day before, explaining his new conditions, which he now called covenants. "So let's go ahead and fund the request that has taken place," he pleaded. "And let's have three covenants, only three covenants. We can do this with a very short bill which we drafted. Three covenants."

  Agreement on Corker's first two covenants came easily. The Democrats had no objection to the notion of converting two-thirds of the automakers' massive debt into equity—debt conversion is a standard practice when restructuring. The UAW, meanwhile, agreed in principle to accept GM and Chrysler stock in lieu of cash to help fund health benefits—it had made a similar accommodation with Ford.

  Wages were another story. In exchange for federal money to keep the automakers afloat and save jobs, Corker wanted the UAW to bring Detroit's labor costs into "parity" with those of the Japanese transplants by the end of 2009. He was in effect angling for a concession that in decades of bargaining the Big Three had never been able to extract.

  The senator was in constant motion, ducking in and out of the negotiation as the tension ratcheted up. The union would not commit to a firm date before the expiration of its contract in 2011 for cutting labor costs, and Corker would not back down. "This is the only thing standing between us and a deal and Christmas," Senator Richard Durbin of Illinois, the majority whip, said with exasperation at the Republicans' intransigence.

  By 10 P.M. the negotiation had failed. Majority Leader Harry Reid announced, "It's over with," going on to predict that Wall Street would not be a pleasant sight the next day. More ominously, he predicted, "This will be a very bad Christmas for a lot of people as a result of what takes place here tonight."

  Bitterly disappointed, Corker blamed the union, speculating that Gettelfinger and his team never really meant to come to terms: the UAW president, a master negotiator, knew that Bush would use TARP as a last resort, probably without the strings that Corker was trying to attach. And, of course, Gettelfinger was counting the days until the union-friendly Obama administration arrived.

  Gettelfinger angrily countered by saying that in recent years the union had made several rounds of concessions to help the automakers while creditors and other stakeholders had sacrificed nothing. "The GOP caucus was insisting that the restructuring had to be done on the backs of workers and retirees," he declared.

  Corker may have been a little in front of his skis, but his effort was admirable. He'd outshone his congressional colleagues in cutting through the confusion and emotion during the early hearings. And together with the Bush team, he had homed in early on the key issue: pumping money into either GM or Chrysler without a substantial restructuring of liabilities and expenses was foolhardy. The levers he tried to pull—reducing outstanding debt, restructuring health care obligations, and making wages competitive—were some of the same that we would manipulate later when the Obama task force took its turn.

  The speed of the President's response the next day took the Treasury by surprise. At 7:10 A.M. Joel Kaplan phoned Paulson from the White House. "The President is on Air Force One," he began, explaining that Bush was en route to Texas but meant to issue a statement before landing. "He does not want the markets to come unglued on the fact that the Senate failed to act," Kaplan said.

  Paulson was annoyed to have only a few minutes to review the President's statement, but he was aware that politically, Detroit was not Wall Street. While Bush had allowed Paulson and Bernanke to call many of the shots during the financial panic, autos were a heartland issue on which the White House wanted to take the lead. The Bush administration was not alone in responding to the Senate's failure to act. Canadian Prime Minister Stephen Harper pledged that his nation would "do our share" to save the automobiles. Accordingly, that morning, the Canadian government declared that it stood ready to kick in an added $2.8 billion to the proposed U.S. bailout. "We want to be part of the solution, and it will be commensurate with the production that takes place here in Canada," the industry minister told reporters.

  Paulson summoned the exhausted staffe
rs monitoring the automakers' crisis amid other duties. "You guys are now going to be working on a potential loan to the autos," he said. "The President is going to need options."

  Minutes later, the White House statement came out. "Given the current weakened state of the U.S. economy," announced Press Secretary Dana Perino, "we will consider other options if necessary, including use of the TARP program, to prevent a collapse of troubled automakers." After that, Paulson's phone rang—calls from Kaplan and Gutierrez and the heads of the Big Three. Each CEO stayed true to script: Nardelli still wanted Treasury to make GM buy Chrysler. Wagoner asked to get started on a bridge loan for GM. Mulally, who stayed on the phone the longest, reiterated his concern that Washington would do something for the other automakers that would put Ford at a disadvantage. That refrain would continue ad nauseam.

  The White House gave the Treasury four days—counting the weekend, that is—in which to map out options. Paulson and his team raced to answer two questions: What was the right policy, and what constituted a fair survey of options to present? A memo sent to the President on Monday night included four options. Except for the fact that TARP was now the source of the funding, the first option was very similar to the House bill—a bridge loan administered by a presidentially appointed car czar and subject to a financial viability test.